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Long Term Care: Learning from the Past… Looking to the Future Canadian Institute of Actuaries General Meeting Chicago, October 19, 2006 Martin Fortier, FSA, FCIA AVP, Individual Pricing Sun Life Financial

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2006 General Meeting Assemblée générale 2006 2006 General Meeting Assemblée générale 2006 Cost of care Home care – nursing care:$50/hour – personal care:$22/hour In Ontario, reaches the cost of semi- private facility room by needing 2 hours per day for 3 days per week of each type of care not covered. (52 hrs/month) Average recipient of home care needs 156 hours per month Ontario pays first 60-80 hours Source: Ontario Health and Long Term Care

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Long Term Care: Learning from the Past… Looking to the Future Canadian Institute of Actuaries General Meeting Chicago, October 19, 2006 Gary L. Corliss, FSA, MAAA, RHU, CSA Avon Long Term Care Leaders, LLC President & CEO

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2006 General Meeting Assemblée générale 2006 2006 General Meeting Assemblée générale 2006 WHAT THE POPULATION THINKS  85%The need for LTC could adversely affect my retirement  42%LTC insurance is the best way to solve the problem of LTC  17%Have purchased LTC insurance * Source: 2006 Survey by Greenwald & Associates Conducted for John Hancock Life Insurance Co

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2006 General Meeting Assemblée générale 2006 2006 General Meeting Assemblée générale 2006 CRACK THE CONSUMER CODE MISCONCEPTIONS “I associate LTC with one foot in the grave in some kind of home.” Source: Hill,Holliday Consumer Research Study, January 2005 COST “I’ve heard it’s prohibitively expensive.” WILLINGNESS TO GAMBLE “My parents lived to a ripe old age and never needed care.” DON’T KNOW WHERE TO GO “I wouldn’t even know who to call to learn about it.” MISTRUST “I don’t trust insurance companies” “Fine print” “Senior scams.” DENIAL “I’m not ready to process the thought of getting older.” (61 year old) More education needed to overcome barriers to purchase

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2006 General Meeting Assemblée générale 2006 2006 General Meeting Assemblée générale 2006 TURN CLIENTS INTO SALES  89%Do not want to be a BURDEN  83%Way to cover high COST of care  80%Way to CONTROL type of care  79%Way to CONTROL place of care  76%PRESERVE ASSETS for spouse * Source: 2006 Survey by Greenwald & Associates for John Hancock Life Ins Co

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2006 General Meeting Assemblée générale 2006 2006 General Meeting Assemblée générale 2006 SUMMARY  LEARN FROM THE PAST  LTC insurance continues to grow in US  Pricing knowledge has strengthened  Products have become more sophisticated  The largest of companies are in – and winning  LOOK TO THE FUTURE  The need for LTC services is growing fast  Prospects are recognizing the need  Somebody is going to seize this market

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2006 General Meeting Assemblée générale 2006 2006 General Meeting Assemblée générale 2006 Long Term Care Insurance THE Product of the Future. Get onboard now. Don’t miss the boat !

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2006 General Meeting Assemblée générale 2006 2006 General Meeting Assemblée générale 2006 Reimbursement vs. Indemnity vs. Disability – Pricing Considerations On reimbursement policies: 1.Not everyone who meets ADL/cognitive triggers gets paid services (“usage factor”) 2.Those who do receive services in the home generally get fewer than 7 days of care/week (“days salvage factor”) 3.Actual cost of services could be less than daily maximum (“cost salvage factor”) All of the above result in savings, compared to reimbursement or disability policies.

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2006 General Meeting Assemblée générale 2006 2006 General Meeting Assemblée générale 2006 Indemnity Policies Usage factor (1) and days salvage factor (2) still apply: Not everyone who meets ADL/cognitive triggers gets paid services Those who do receive services in the home generally get fewer than 7 days of care/week Cost salvage factor (3) does not apply: Actual cost of services is irrelevant, as a fixed indemnity is paid.

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2006 General Meeting Assemblée générale 2006 2006 General Meeting Assemblée générale 2006 Disability/Cash Policies None of the 3 factors apply: Usage is 100%, as there is no reason for a claimant to “wait” to start a claim (and the claim is measured from date of disability, not date of first service) The benefit is paid for 7 days/week, whether care is received or not (no days salvage) A fixed amount per day (week, month) is paid (no cost salvage) IN ADDITION: Disability policies have been subject to increased utilization (anti-selection), compared to reimbursement policies.

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2006 General Meeting Assemblée générale 2006 2006 General Meeting Assemblée générale 2006 Effect of Various Factors in Determining Cost Differentials Between Policy Types FactorReimbursementIndemnityDisability UsageVaries by age: 47% usage for youngest males to 91% for oldest females Average = 85% Same as Reimbursement 100% usage for all ages. Load to reimbursement is thus 113% to 10%. Average = 18% Days salvageHHC services assumed to be used 21 days/month, for days salvage of 30%. Same as Reimbursement 30 days used per month, for load to HHC portion of cc of 43% Cost salvageDepends on average daily benefit; likely to be 5 to 10% None; load is 5 to 10%, most likely on HHC portion of benefit only None; load is 5 to 10%, most likely on HHC portion of benefit Only Anti-selectionNone (baseline)NoneApproximately 30% - on all benefits Average load for indemnity policy – minimal (less than 5%). Average load for disability policy – approximately 60 to 70%.

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2006 General Meeting Assemblée générale 2006 2006 General Meeting Assemblée générale 2006 In summary… Premiums have increased, due to updated lapse assumptions and interest Rates have stabilized, but there are still significant differences in market premiums Less is known about disability product experience Product is capital intensive and still somewhat risky But…demographics are hard to ignore, and possibility for profit does exist